193 F. 825 | 3rd Cir. | 1912
The appellant, the complainant below, seeks to review the decree of the Circuit Court of the United States for the District of New Jersey, rendered on June 26, 1911, which sustained the demurrer interposed to the bill of complaint by the appellees, the defendants below, and dismissed the bill.
The bill states that the complainant was a citizen of the state of Pennsylvania, and that the Francisco Sugar Company is a corporation of the state of New Jersey, and Manuel Rionda a citizen of the state of New York; that the defendant corporation was duly organized in 1899 under the provisions, of an act of the Legislature of the state of New Jersey, entitled “An act concerning corporations” (Revision of 1896; P. L. p. 277). The range of objects for which the defendant corporation was incorporated, stated in its certificate of incorporation, as set forth in the bill of complaint, is very large, and the business in which it did engage, to wit, the holding and
The bill avers that the complainant believes that, owing to his expressed objection to so much of the plan stated in the “Offer and Deposit Agreement,” as contemplated the issuance of its bonds by the defendant corporation, to enable said Rionda to purchase the stock of the company, and to complainant’s threat to take legal measures to prevent such an issue of bonds, the carrying out of said “Offer and Deposit Agreement” has been in abeyance, and that the said Invest
“That the adoption of the aforesaid resolution by the board of directors of the defendant corporation, looking to a reduction of the corporation's capital stock by the purchase for retirement of about fen thousand (10,000) shares of said stock by the means hereinbefore set forth, was and is illegal, wrongful and fraudulent, and in the interest of the said Rionda, and contrary to the interests of the defendant corporation and its other stockholders, and that the scheme which said Rionda is endeavoring to carry out through the corporation’s board of directors, and by means of the vote of a majority of its stock controlled by him, is illegal, wrongful and fraudulent.”
It then charges that the board of directors of the defendant corporation is entirely under the control of the said Rionda, and application to said board to rescind its aforesaid action would be vain and futile, even if it were possible to obtain a meeting thereof. And the same charge is made in regard to the stockholders’ meeting, which it is alleged will be under the control of the said defendant, Rionda.
The complainant then alleges that he has no adequate remedy at law, and is remediless, save by the decree of the court. The relief prayed for is that the defendant corporation, its officers, directors, stockholders, agents and. attorneys, and the defendant Rionda, his agents, etc., may be perpetually enjoined from approving or adopting or voting for any plan, or adopting or voting for any resolution to reduce ■the authorized capital stock of the defendant corporation, or to purchase for retirement any of the capital stock of the corporation, to be paid for by the issue of 6 per cent, first mortgage bonds of the defendant corporation, or by any other means involving the creation of any pecuniary obligation of the defendant corporation which shall rank superior to your orator’s shares or tend to depreciate the value thereof.,
The grounds of the defendant’s demurrer were:
(1) That the bill was without equity;
(2) That the complainant had an adequate remedy at law;
(3) . That he was guilty of laches;
The decree sustaining the demurrer and dismissing the bill was not accompanied by any opinion of the court. The averment in the bill, that the defendant corporation had no right, authority or power to issue its mortgage bonds for the purposes of retiring any portion of its capital stock, and that such proposed and threatened action on the part of the corporation is ultra vires, illegal and contrary to law, raises the fundamental question in this case, and to its discussion the complainant below, as appellant here, has devoted the stress of his argument. If this averment be true, of course the demurrer should have been overruled.
Section 27 of the General Incorporation Law of New Jersey (Revision of 1896) provides that:
“Every corporation organized under this act may change the nature of its business, change its name, increase its capital stock, decrease its capital stock, change the par value of the shares of its capital slock, change the location of its principal office in this state, extend its corporate existence, change its common stock into one or more classes of preferred stock, create one or more classes of preferred stock, and make such other amendment, change or alteration as may be desired, in manner following:’’ etc.
The section then prescribes in great detail how the corporation may incept and carry out the changes and amendments thus authorized; what action shall be taken by the hoard of directors, what by the stockholders, and that two-thirds in interest of each class of the stockholders shall vote in favor of such amendment or alteration, and how the said action of the stockholders shall be certified and become operative, etc.
In Burnes v. Burnes, 137 Fed. 781, 788, 70 C. C. A. 357, 364, Judge Sanborn, delivering the opinion of the Circuit Court of Appeals for the Eighth Circuit, uses this language:
“While the powers of a corporation are limited to those expressly granted and those fairly incidental ihereto, they include the latter as completely as the former, and they always include the indispensable and the suitable means to exercise the granted power,s. In the absence of constitutional or claim ory prohibition, corporations have Inherent power to buy, to sell, and to retire their own stock. Commissioners v. Thayer, 94 U. S. 631, 643*832 [24 L. Ed. 133]; City Bank v. Bruce, 17 N. Y. 507, 511; First National Bank v. Salem Capital Flour Mills Co. (C. C.) 39 Fed. 89, 95; Lowe v. Pioneer Threshing Co. (C. C.) 70 Fed. 646, 647; In re S. P. Smith Lumber Co. (D. C.) 132 Fed. 618, 619; New England Trust Co. v. Abbott, 162 Mass. 148 [38 N. E. 432, 27 L. R. A. 271], There is no such inhibition in the state of Missouri. The purchase of the 375 shares by the Burnes Estate was, therefore, within its corporate powers, and, as it had authority to buy those shares of stock, it had the corporate power to pay for them either in cash or by its promise to pay the agreed price in monthly or yearly installments during such periods of time as should be fixed by the meeting of the minds of the parties.”
It is not surprising, therefore, to find a recognition of this power in the section of the New Jersey Corporation Act, as above quoted, though it is limited by the specific regulations prescribed! for its exercise. In section 29 of the same act, the decrease of capital stock authorized in section 27, is specially dealt with, as follows:
“The decrease of capital stock may be effected by retiring or reducing any class of the stock, or by drawing the necessary number of shares by lot for retirement, or by the surrender by every shareholder of his shares, and the issue to him in lieu thereof of a decreased number of shares, or by the purchase at not above par of certain shares for retirement, or by retiring shares owned by the corporation or by reducing the par value of shares,” etc.
This act is in four-sections. The first amends the sixteenth section of the Act of 1896, so that the same shall read in the manner therein set out. It is concerned with the first meetings of incorporators for organization, and with notice to incorporators, etc., not material to the present question. Section 2 reads as follows: -
.“2. With tbe consent of two-thirds in interest of each class of the stockholders present in person or by proxy at a meeting called in the manner provided in section twenty-seven, every corporation organized under 'this act that shall have issued preferred stock, entitling the holders thereof to receive dividends at a rate exceeding five per centum per annum, and that shall have continuously declared and paid dividends at such rate, on such*833 preferred stock for the period of at least one year next preceding the meeting, and whoso floating or unfunded debt at the time of the stockholders’ meeting shall, in the certificate thereof filed with the Secretary of State, be certified not to exceed ten per centum of the par amount of the preferred stock then outstanding, and whose assets .at such time, after deducting the amount of its indebtedness, shall be certified in the judgment of the officers making such certificate to be at least equal to the amount of preferred stock issued and outstanding, may, with the consent of the holder of any such preferred stock, redeem and retire the preferred stock of such holder, out of bonds or out of the proceeds of bonds of the corporation, hearing interest at a rate not exceeding five per centum per annum, the principal of such bonds being made payable at a date not less than ten years from the date thereof; every corporation organized under this act may, from time to time, in the manner above provided, issue bonds, which, if therein so declared, shall be convertible at par, at the option of the holder, into fully paid common stock of the corporation at par, within any period therein prescribed not less than two years from the issue thereof; and in suefi ease the board of directors may authorize the issue of the common stock into which such bonds, by their terms, shall be convertible.”
Section 3 reads:
“All acts and parts of acts inconsistent with this act are hereby repealed.”
.Section 4 provides that the act shall take effect immediately.
The contention of counsel for the appellant is, that when the Act of 1902 was passed, it declared the entire law of New Jersey on the subject of the retirement o'f corporate shares by purchase, and expressly superseded and repealed all acts and parts of acts inconsistent therewith; that it became the substitute for the provision of section 29, relating to the retirement of shares by purchase. To use the language of counsel for the appellant:
“The right of retirement was therefore, in the first place, limited to ‘every corporation organized under this act that shall have issued ¡preferred stock entitling the holders thereof to receive dividends at a rate exceeding five per centum per annum.’ This was a limitation on the class of corporations which were to have 1he right to.redeem and retire any portion of their stock. The specification of this class of corporations necessarily excluded all others, and hence, also excluded from the right of redemption and retirement the common stock, as distinguished from the preferred stock of the corporation.”
We are unable to accept this interpretation of the Act of 1902. Repeal by implication is not favored in law. The grounds upon which it rests must be so strong and convincing as to raise a conclusive presumption of legislativé intent, as where the whole field of the prior act is covered by the later one in such mandatory form that the inference that the later act is to be a substitute for the former, cannot be avoided.
“If both acts can stand together, both shall stand, but if they are so repugnant to each other that both cannot stand together, the former gives place to tlie latter.”
Section 29 of the Act of 1896 authorized the decrease of capital stock, by retiring or reducing any class of the stock, common or preferred. Section 2 of the Act of 1902, while interfering with no vested right of a preferred stockholder, prescribes a different mode by which such stock might be reduced or retired or purchased with the
Nor can the canon of construction, that a special act will be treated as superseding an earlier general act, be successfully invoked by the appellant in support of the conclusion which he is seeking to establish. The general Act of 1896 provides that any class of stock, common or preferred, may be retired by purchase. The special act relates only to that part of the general act authorizing the retirement of preferred stock. It is an exception to the general provisions of that act. It cannot refer to or affect the general act in 'any particulars not covered by the special act. This canon of construction is founded on reason and common sense, and both must be regarded in its application.
We have already indicated our independent view as to how far the Act of 1902, in regard to the retirement of preferred stock' affected the general provisions of the twenty-seventh and twenty-ninth sections of the Act of 1896, in regard to the retirement of capital stock, whether preferred or common. It remains to consider whether, in the case referred to, the court has so dealt with the construction and effect of these statutes as to require from us any change or modification in the view we have above expressed. In the Berger Case, a defendant corporation was sued by a dissenting preferred stock
This decision of the highest court of the state of New Jersey seems to us to put beyond the region of controversy, not only the question whether the Act of 1902 repealed by implication the provision of section 29 of the Act of 1896, whereby ’corporations having only common stock might retire the same by purchase, but also the question, whether, in retiring their common stock, such corporations may, under the provisions of said act, issue bonds for that purpose. As counsel for the appellant contends that these questions were not in issue or necessary to be decided by the courl, a somewhat extended extract from the opinion in that case becomes necessary:
“Tile question to be solved is whether the ‘act concerning corporations,’ in connection with the certificate of incorporation filed under it, contains a grant of power to retire shares of stock in the maimer adopted by the board of directors and ratified by the vote of the stockholders.
“The twenty-seventh and twenty-ninth sections of the Corporation Act of 1890 expressly provide for the retirement of both classes of stock.
“The fifth section of the act provides ‘that this act and all its amendments shall be a part of the charter of every corporation heretofore or hereafter formed under it, except so far as the same are inapplicable and inappropriate to the objects of such corporation.’
“The complainant, therefore, lias no vested right to retain her shares in opposition lo any lawful method provided for retiring them. Nor, under the provisions of our corporation act, can any just basis be found for the assertion that her vested rights as a stockholder are impaired by the purchase by the corporation of its own shares of stock.
“In Chapman v. Ironclad Rheostat Co., 62 N. J. Law, 497 [41 Atl. 690], ¡Sir. 'Justice Ilixon, in an opinion delivered in our Supreme Court, very clearly demonstrates that, under the Corporation Act of 1896, there is an implied grant of power io corporations to purchase shares of their own capital stock whenever such purchase is required for legitimate corporate purposes. Section 20 makes such shares personal property; section 1, subdivision 4, gives power to purchase such personal property as the purposes of the corporation shall require, except what is excepted in section 3, which exception does not include shares of its own stock. Therefore, in connection with sections 29 and 38, the right of a corporation to purchase its own shares is necessarily implied.
*836 “This right is also so folly recognized by the twenty-ninth section, that it seems to be removed from debatable questions. That section provides that capital stock may be decreased by retiring shares owned by the corporation, which* unquestionably implies the power to acquire and hold its own shares.
“The first question to be considered is whether the appellant has power, under the act of 1896, to retire its shares in the proposed method which is now challenged b3; the respondent.
“That act provides several ways in which stock may be retired by a vote of two-thirds in interest of each class of stockholders:”
After a discussion of these several ways, the court says:
“The corporation act gives express power to retire shares by purchase, and that provision must be read into the certificate of incorporation, under and subject to which the complainant holds her stock. It cannot, therefore, be even plausibly maintained that shares cannot be purchased for retirement by cash.
“But it is contended that the appellant is without authority to issue bonds with which, or with the proceeds thereof, it purposes to effect the purchase.
“There is no provision in the corporation act, or in the charter of the company, to support the proposition that purchases of its stock cannot be made by it on credit.”
The court then proceeds with an argument to show that, as a necessary consequence and corollary of the right to purchase, credit may be given for any time convenient to the parties- contracting, and by an elaborate and well-considered course of reasoning concludes, that “the right to create' a debt also carries with it the right to secure it by mortgage, or otherwise, in the absence of any statutory, restraint upon the corporation,” and that therefore, under the Incorporation Act of 1896, a corporation may purchase its own stock, either preferred or common, with the intent to retire the same, either for cash or by issuing its own bonds, secured by mortgage, in exchange for such stock. This being so, the court decides that no vested right of the complainant stockholder was interfered with by the Act of 1902, prescribing specifically that preferred stock might be exchanged for bonds secured by a mortgage, because. retirement in that mode was already provided for under section 29 of the Act of 1896. By this express and necessary holding as to the proper interpretation of these statutes, the contention of counsel for the appellants, that the previously existing law is so modified by the Act of 1902 as to limit the retirement of stock by means of bonds to the retirement of preferred stock in that manner, and that therefore the retirement of common stock by that method is excluded, is negatived.
But counsel for the appellant insists that, whatever the court said with respect to the interpretation of section 29 of the Act of 1896, was only said for the purpose of indicating that the Act of 1902 did not interfere with a vested right, and, “far from injuriously affecting any vested right of a stockholder, tended to limit the power which previously existed, and hence was not subject to the constitutional objection on which the complainant in that case relied.” The position of counsel for the appellant appears to be this: That the complainant in the,Berger Case took her stock under the provisions of the Act of 1896; that the rights attaching to her status as stock
“The Act of 189(1 gave the appellant the right, by a two-thirds vote of its shareholders, to retire preferred stock by purchase. The Act of 1902 preserves that right, merely regulating- the manner in which it should be exercised.”
Clearly when, further on in the opinion, the court says:
“The fact that the Act of 1902 excludes all other methods for retiring shares by purchase, and the provision that it cannot be applied unless it is made to appear that the assets,” etc.
—it was assumed by the writer of the opinion that reference was made only to the retirement of preferred stock, as regulated hy the Act of 1902, and it was not necessary to constantly repeat in words that assumption.
The contention that the Act of 1902 superseded and repealed, or was intended to supersede and repeal, all the provisions of the Act of 1896, in regard to the retirement of corporate shares by purchase, and in this respect became a substitute for'the provision of section 29, is at variance with the whole trend of the opinion and the interpretation applied to the legislation in question by the Court of Er
“If, on this branch of the case, it had been concluded that in some material respect, the provision of the Act of 189G had not been pursued, the Act of 1902, which had been strictly followed, is valid and constitutional.’’
This language is hardly consistent with the meaning attributed to the court by counsel, that it held the provisions of the Act of 1896, in regard to the retirement of stock, whether common or preferred, as wholly superseded by the Act of 1902.
The court then proceeds to another branch of..the case, viz., whether the Act of 1902 is a special act. After the full discussion of the contentions, pro and con, it decides that it is not a special act, with reference to the Act of 1896, and after dealing with questions peculiar to the case in hand, and not material here, concludes with the language already quoted:
“The act of 1S96 gave the appellant the right, by a two-thirds vote of its shareholders, to retire preferred stock by purchase; the Act of 1902 preserves that right, merely regulating the manner in which it should be exercised.”
We think it clear, from what has been already said as to the decision in this case, that the court has necessarily assumed that sections 27 and 29, in regard to the retirement of the capital stock of corporations, is still in force, except so far as the method to be pursued when the retirement of preferred stock is to be effective is concerned, and that the right of retirement is still recognized as existing under the Act of 1896. The language just quoted and relied on by the appellant, is entirely consistent with the view we have here taken, of what was decided by the Court of Errors and Appeals of New Jersey in that case.
“The directors of a corporation shall not make dividends except from its surplus or from net profits arising from the business of such corporation, nor shall it divide, withdraw or in any way pay to the stockholders or any of them any part of the caxiital stock of such corporation or reduce its capital stock except as authorized by law.”
We think that a consideration of this section and :the judicial interpretation that has been given to it by the courts of New Jersey, make it entirely plain that the excess of funds or property actually in hand, over and above the sums which the company is bound to keep as capital, must be computed with reference to its nominal capital as reduced. In this 'view, there can be no dispute that there is a surplus applicable under the - law to the proposed retirement of stock. It is to be observed, also, that in this very section, the inhibí
In Continental Securities Co. v. Northern Securities Co., 66 N. J. Eq. 274, 57 Atl. 876, the Court of Chancery, in dismissing the bill’, said:
“By the reduction of the capital stock of n corporation not, impaired by losses, there must necessarily occur a surplus of assets to the extent of the reduction, and unless the rights of creditors would be effected thereby or the capital impaired. It' becomes the duty of the directors to make ail equitable distribution of such surplus or so much thereof as the carrying on of the business for the best interests of the stockholders may not require. Strong v. Brooklyn R. R. Co., 93 N. Y. 426; Williams v. W. U. Tel. Co., 93 N. Y. 163; Morawetz on Corp. 153. The proposed distribution is not a dividend in the sense intended by the statute, but a division of surplus capital rendered useless for the purposes usually attributed to capital, because the issue of stock which it ¡'(‘presented has been canceled.”
See, also, Strong v. Brooklyn Railroad Co., 93 N. Y. 426, where the court, in considering what restraint a precisely similar provision to that contained in section 30 of the New Jersey Incorporation law, imposed upon the right of the corporation to decrease its capital stock by purchase of outstanding shares, said:
“In such a case, the excess of its funds and property actually in hand, over and above .the sums which the company is bound to keep as capital (viz., its nominal capital as reduced), is converted into a surplus fund which it can dispose of by dividing it among iis stockholders.”
See also, Cook on Corp. § 289, vol. 1, p. 787, 4th Ed.
“The scheme assailed in tin? bill is fraudulent as against the complainant, and its effectuation should be restrained.”
As this case is being considered upon a demurrer to the bill, the fads pleaded, or necessary deductions therefrom, must sustain, the charge that the contemplated acts of the defendant sought to be restrained are so fraudulent as to equitably entitle the complainant to the relief asked for. We need only refer to the averments of the bill already summarized.
The averment that the defendant corporation, its stockholders and directors, in preparing or threatening to carry out the reduction of capital stock, as heretofore explained, were in fact carrying out a “scheme” of the defendant Rionda, by which he intended to obtain stock control of-the corporation, may be taken as true. It may also be taken as true that, if all the other stockholders except Rionda and the complainant should surrender the proposed proportion of their stock, as set forth in the circular letter signed by the secretary of the corporation, requesting such surrender, Rionda’s 2,227 sitares retained by him would give hint a controlling stock interest in the company. It may also be accepted as true that Rionda intended to pro
“To tlie Stockholders of the Francisco Sugar Go.
“Gentlemen: We have a valuable property and. for nearly ten years we have given to it our best service. It is now in a splendid shape, but we have come to the conclusion that we cannot continue to manage it in a satisfactory manner on account of the distance and in a foreign country and having no one who can remain on the property who has qualifications to manage such a large or such a.comprehensive business.
“It requires about three hundred thousand dollars ($300,000) to pay the ex*841 penses during the dead season and until we receive any cash from the next, crop.
“After several years of effort we have received the accompanying offer of Mr. Manuel Rioiula, dated August 6. 1909, which we consider a good one and we recommend you to accept.1 It will paj? 7% per cent, on your investment and is secured by a mortgage covering all the property the company now owns, which includes over 50,000 acres of land, a complete sugar factory, railroad, wharf, large general store, dwelling and offices, tenant houses, etc-., etc. We consider the security good and the proposed buyer and his family have had much and successful management of sugar properties in Cuba and we believe will run it successfully.
“Mr. Craig's health will not allow him to continue as president, and Mr. James M. MeCahan finds that he cannot continue as vice president.
“W. J. MeCahan,
“Jas. W. Cooper,
“Jas. M. MeCahan,
“Philadelphia, August 6th, 1909. John F. Craig.”
In the absence of any facts well pleaded, which, if true, would impute fraud to the defendant, we cannot, on a mere suggestion of interested motives on the part of the defendants, in attempting to carry out their proposal, by bringing about a retirement of stock permitted and favored by the law, and in the mode qnd mariner prescribed by the law, find any equity in the complainant’s position that would entitle him to the relief sought by the bill of complaint. It does not need the array of authority cited by the counsel for the appellees to establish the proposition that, in the respects herein under consideration, the majority of the stockholders are not trustees for a dis-sentient stockholder, and have a clear right to vote on the ground of what they consider their own interests, in the acceptance or rejection of the offered plan for reducing the stock of the corporation. It seems to be a clear case of a mere difference of opinion between a large majority of the stockholders and the dissentient stockholder, who is the complainant. If the defendant should hereafter abuse the power he has acquired by ownership of the majority of the stock of the defendant corporation, the complainant, or any other minority stockholder, has ample remedy to restrain such abuse of power and obtain redress therefor by public or private suit. But the mere averment that power lawfully obtained may be, or often is intended to be, thereafter unlawfully or oppressively used by the defendant, presents no ground for equitable relief.
On the whole case, we are of opinion that the demurrer to the bill of complaint was properly sustained, and the decree of the court below is affirmed.